Northern Rock Falls Ahead of Key Meeting

By TIM SHARP

SHARES in Northern Rock fell more than 5% yesterday as it was revealed that the government has lined up former Lloyds of London chief executive Ron Sandler to potentially take over the company.

Today will prove critical in determining the company’s future, as shareholders vote on measures that will restrict the board’s ability to restructure the company and could hasten its nationalisation.

While consortia led by Olivant and Virgin have been lined up to take over the bank, the government has maintained that nationalisation remains an option.

If the state takes over the company, which has borrowed L25bn of taxpayers’ cash since encountering funding problems in the summer, Sandler would become executive chairman. The fact that the government’s plans are so well advanced prompted analysts to think nationalisation was increasingly likely.

Sandler was briefly chief operating officer at NatWest, where he attempted to see off takeover moves by Bank of Scotland and Royal Bank of Scotland, leaving when Royal Bank won the day.

He also has close ties with the government, having produced a report on the savings industry.

The thought that shareholders may get little or nothing from their stakes in the company meant a turbulent day for Northern Rock shares, which dipped 7% at several points, although they recovered to end the day down 4.75p (5.4%) at 82.5p, valuing the company at L347m.

In February last year shares in Northern Rock peaked at 1251p, giving the company a worth of L5.3bn.

Today shareholders will attend an extraordinary general meeting of the company to discuss resolutions proposed by hedge funds SRM Global and RAB Capital, which share a 17% stake in the bank. They want to prevent the board selling large assets or issuing large numbers of shares without investor approval.

The board has complained that this could limit its moves as it attempts to save the bank. Even if the restrictions are not passed there is no guarantee that a buyer will be found.

But Chancellor of the Exchequer Alistair Darling reiterated yesterday that he would prefer a private sector solution.

The Liberal Democrats are adamant that the bank should be temporarily nationalised. The party’s Treasury spokesman, Vince Cable, said: “The special interests of a couple of hedge funds who are out to make a quick buck must not be allowed to jeopardise billions of pounds of taxpayers’ money.”

The bank’s employees are also attempting to make their voices heard. Members of the Unite union are to hold a demonstration outside the EGM in Newcastle calling for the retention of Northern Rock as a listed company and protection for the pensions and employment terms of its workers.

Originally published by Newsquest Media Group.

(c) 2008 Herald, The; Glasgow (UK). Provided by ProQuest Information and Learning. All rights Reserved.